US Dollar Index turns negative after clinching new cycle highs past 96.00

• DXY advances past 96.20 and clinches YTD highs.
• US yields shed some ground following earlier tops.
• Housing Starts, Building Permits, Fedspeak all next in the docket.

After hitting fresh cycle tops near 96.20 earlier in the session, the US Dollar Index (DXY) now returns to the sub-96.00 levels following the opening bell in the old continent.

US Dollar Index looks to yields, data

The index looks to extend the sharp upside for the third session in a row, although it came under some selling pressure soon after recording new tops in the area further north of the 96.00 barrier.

The knee-jerk in the buck follows the correction in US yields along the curve after reaching new weekly tops earlier in the session.

The recent move higher in the dollar appears underpinned by omnipresent inflation concerns, auspicious results from the docket – after improvements in Retail Sales, Industrial Production and the NAHB Index – as well as supportive Fedspeak. On the latter, FOMC’s J.Bullard (ex dove?) suggested on Tuesday that the Committee should shift to a more hawkish direction, opening the door at the same time to higher rates in 2022.

In the US calendar, the weekly report by the MBA on Mortgage Applications is due seconded by Housing Starts and Building Permits. In addition, FOMC’s Williams, Bowman, Mester, Daly, Waller, Evans and Bostic are all due to speak.

What to look for around USD

The index once again managed to hit new cycle highs on Wednesday, this time above the 96.00 yardstick. The intense move higher in the buck remains well underpinned by the “higher-for-longer” narrative around current elevated inflation, which in turn lend wings to US yields and bolster speculations of a sooner-than-estimated move on interest rates by the Federal Reserve, probably at some point in H2 2022. Further support for the dollar comes in the form of the solid recovery in the labour market, Biden’s infrastructure bill and positive results in US fundamentals.

Key events in the US this week: Building Permits, Housing Starts (Wednesday) – Initial Claims, Philly Fed Index (Thursday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.04% at 95.88 and a break above 96.24 (2021 high Nov.17) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 94.56 (monthly high Oct.12) followed by 93.87 (weekly low November 9) and finally 93.75 (55-day SMA).